The mortgage servicing rights (MSR) market has been hot of late, with prices higher than ever and many mortgage origination firms looking to capitalize on the windfall. However, there are several potential issues lurking in the near future that investors should remain aware of.
First, bank MSR portfolios have been shrinking in recent years due to stress tests imposed by regulators and increased capital requirements. This means that banks are less willing to hold MSRs, which can be seen by tightening credit requirements and putting more emphasis on loan servicing.
Second, independent mortgage banks (IMB)s are constantly fighting to stay in business, given the high costs of running one and the ever-increasing regulatory requirements. This issue is compounded by the fact that many IMBs rely heavily on MSRs to drive revenue, and a shrinking supply could lead to trouble.
Finally, it’s thought that future trading volumes in the MSR market could be affected by any number of things, such as mortgage default rates, economic predictions, and changing buying patterns. Investors need to be aware of these possibilities and be prepared for any hiccups along the way.
Important Elements:
– Bank MSR portfolios are shrinking due to stress tests and increased capital requirements
– IMBs are on a treadmill with high costs and increased regulation
– Potential headwinds in terms of future trading volume due to mortgage default rates, economic predictions, and buying patterns
You can read this full article at: https://www.housingwire.com/articles/msr-trading-should-finish-strong-in-2023-but-there-are-headwinds/(subscription required)
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